In the world of acronyms, we now have SPAC—special purpose acquisition company.
This once esoteric creature is becoming a common way for privately held companies to go public without the expense, distraction and sometimes unpredictable result of an IPO.
A decade ago, just seven companies went public through SPACs. Through mid-August, 64 companies already had merged with SPACs. And in the past year, two gaming companies (Accel Entertainment and DraftKings-SBTech) became public through SPACs and two are pending, Golden Nugget Interactive and Rush Street Interactive.
A SPAC is simply a company created by investors that goes public with the requirement that it acquire a target company within 18 months. All funds raised in its IPO must go to acquire the target company that, in turn, becomes public in a reverse merger.
While these deals are put together by institutional and other big-time investors, others can get in early by buying the SPAC stocks. For example, dMYTechnology Group, which is acquiring Rush Street Interactive for an enterprise value of $1.783 billion, trades as DMYT. It has a market cap of a little over $300 million. Lancadia Holdings, which is buying Golden Nugget Online Gaming for $745 million in enterprise value, trades as LCA and has a market value around $560 million.
As you might have guessed, Rush Street Interactive, which will trade under the symbol RSI, is being spun off by Rush Street Gaming. Golden Nugget Online Gaming, which will trade under GNOC, is being spun off by Tilman Fertitta’s Golden Nugget Gaming. Fertitta is LCA’s chairman and CEO.
One reason that SPACs have been used so infrequently by gaming companies is the long lead times to gain regulatory approvals for acquisitions, which makes the 18-month deadline problematic. For example, Eldorado’s purchase of Caesars took a year to close as so many states had to give their approval.
Those lead times aren’t as long for companies that operate in few states. Accel, for example, was licensed only in Illinois when it was acquired by TPG Pace Holdings last year at an enterprise value of $888 million, or 1.7 times forward revenue.
Those valuations are higher for the two online companies being spun off by their parents. DMYT is buying RSI at 5.4 times enterprise value to revenue. LCA is paying 8.9 times for GNOC.
So, who goes next?
Adam Steinberg of AM Steinberg Advisors addresses that question in a primer he has written on SPACs.
Companies he thinks might sell to SPACs as their way to become public include the U.S. operations of London-listed William Hill, which is 20 percent owned by Caesars. Given the dichotomy between fast-growing William Hill US and its slow-growing parent an IPO of the American operation might be the way to unlock its value.
Other candidates Steinberg sees are Penn National Online, ROAR Digital, the joint venture of MGM Resorts and GVC, Caesars Interactive and Sportradar.
Sportradar is a niche company that supplies sports data to a range of enterprises from companies to governments to sports teams. That a privately held Swiss company would go public in the U.S. may say something about the potential Sportradar sees in U.S. sports betting.
Steinberg’s primer is available at adam@amsteinbergadvisors.com.
